2013년 10월 1일 화요일

( ... ... ) the recurrent currency crises of the 1990s. Moreover it is presumably this general impression which has instinctively led many of the most important names in economics to devote such a large part of their energies to money and monetary matters, including Keynes, Hicks, Hayek, and Friedman in the 20th century. This point remains valid, even if a number of those devoting themselves to money (Friedman, for example) eventually arrived ad a real rather than a monetary analysis, in the sense defined above (Smithin 1994). An even more compelling argument, however, is that if money really does not matter it would be impossible to explain why the social control and production of money and credit continues to be the subject of such ferocious political debate. Why is it important to the financial interests, for example, that central banks should be independent (i.e., not subject to democratic control)? Why do participants in the financial markets in Wall Street hang on every word uttered by the Chair of the Board of Governors of the FRS in the congressional testimony? And what is the significance of the contentious social experiment of the 'single currency', the Euro, ( ... )?

In a recent paper (Smithin 1999), I argued that two fundamental issues in monetary theory were the exogeneity or endogeneity of the money supply in the system under consideration, and whether the Wicksellian notion of a (non-monetary) 'natural rate' of interest (Wicksell 1962[1898]) is a meaningful concept.

Orthodox or mainstream monetary theory with its insistence on monetary exogeneity and a basically non-monetary theory of interest was taken to be at one extreme.

Conversely, it was argued that a more viable or realistic theory for the monetary production economy would reject both exogenous money and the existence of a mythical natural rate. In other words, the jettisoning of these assumptions is necessary for the correct analysis of what Ingham (Chapter 2 of this volume) calls 'capitalist credit money'.

There is, however, clearly a prior question to both of these analytical problems, which is how the social constructs of money and credit come into existence in the first place.

It is the premise of this volume that the answers given to the analytical questions in dispute will be closely related to the views taken on the prior issue of the role which money plays in the economy. This is coupled with the historical/logical question of how capitalist institutions, in particular the basic concept of production for the market, specifically for monetary reward, came to exert such a dominating influence in our social life.

Although it will be seen that not all of the contributors whose work is represented here would agree with this point of view, the starting point of the original call for papers was that two main approaches to the issues could be identified. The first was one version or another of the mainstream view which focuses on money's role as a medium of exchange, and asserts that money arises as an optimizing response to the technical inefficiencies of barter. The classic account which is usually cited is that by Menger (1892), and the tradition has persisted to the present day in such contributions as Jones (1976), Kiyotaki and Wright (1989, 1993) and almost every textbook. In this view, the development of money must presumably make some difference to the economic system at the time it is first introduced, in terms of improving the efficiency of exchange and reducing transactions costs. However, it is held (somewhat inconsistently?) that once the concept is firmly established, subsequent changes in the monetary variables do not impinge on the underlying barter exchange ratios. The whole approach is therefore consonant with, leads to, concepts of neutral money, money as a veil, natural rates of interest, fixed quantities of money, and so on. In short, it leads directly up to an essentially real analysis of economic phenomena in Schumpeter's sense.

The other main line of research begins with what Ingham (1996) has called the 'social relation' of money. Starting with the basic concept or idea of money, and the development of specific social rules, mechanism, and institutions regarding money creation, the suggestion is, in effect, that markets, exchange, even capitalist production itself, are the consequence, rather than the cause, of the development of the notions of money, price lists, and credit. From this point of view, the textbook story about money emerging spontaneously from some pre-existing natural economy based on barter exchange is rejected as being both historically and logically inaccurate. Rather than money emerging from the market, the suggestion is that if anything the converse is true. Some writers have focused on what Hoover argues has been 'traditionally regarded as the weak sister of the famous triad', that is, '[the] unit of account' (Hoover 1996: 212) Interestingly Keynes for one explicitly stated that, '[m]oney of account, namely that in which debts and prices are ^expressed^, is the primary concept of a theory of money' (Keynes 1930: 3, original emphasis). However, on a wider view presumably a money of account would be just the starting point for a more complete description of the development of the social structure of monetary practice, which would also include the development of standardized means of (final) payment denominated in the unit of account and the development of secure credit relations (see Ingham, Chapter 2 of this volume).

The main point is that these alternative views on the logical and historical development of monetary concepts ultimately lead to the view that money, or at least the price of money (the rate of interest), 'enters as a real determinant in the economic scheme' (Keynes 1936: 191), and away from neutral money, exogenous money, and 'natural rates' of all kinds. In other words it leads to a more genuinely monetary analysis, of which Keynesian monetary production is itself one prototype.

In addition to, and frequently overlapping with, the two broad streams of thought identified here, there are ongoing debates on the nature of money within the confines of particular analytical traditions, such as the Austrians, Marxians, and Post Keynesian traditions (Dow 1985). Whatever view is ultimately taken on the merits of the various positions in detail, the basic point that different opinions on the key analytical and policy questions will depend on the underlying view taken on the role of money in the economy and the social structure must surely survive. This is inescapable, as soon as it is accepted that there is more than one way of looking at these issues.

Mentions of the textbook functions of money highlights another difficulty which seems endemic in most discussions of monetary theory. The textbook triad(medium of exchange, store of value, unit of account) has in itself tended to structure and limit the discussion in a variety of ways. Among these are attempts to define money as simply that which fulfils each of the three functions in any given society at any point in time, an approach which inevitably comes to grief as financial innovation proceed. In the early 20th century the academic journals were filled with discussions on whether the checkable demand deposits of commercial banks should count as money. That issue having been decided, during the debates over monetarism in the 1960s and 1970s, the issue shifted to precisely which deposites in which financial institutions should be allowed to count, M1 versus M2 versus M3, and so on. Financial innovation and deregulation have obviously proceeded even more rapidly in the past 25 years, making the search for a unique monetary aggregate which fulfills textbook requirements even mor futile.

An opposite temptation suggested by the textbook triad is to question whether the different functions logically need to be bundled together in the same asset or set of assets, and whether it is possible to design a coherent system in which the monetary functions are separated. This viewpoint also questions whether such a system would function more efficiently than the current one, and which of these alternatives would have evolved in the imagined ideal natural economy. Comprehensive discussions of these issues are to be found, for example, in Cowen and Kroszner (1994), Greenfield and Yeager (1983, 1989), and Selgin and White (1994).

Finally, there are the debates on which is the most important or significant of the different functions of money, and (perhaps even more importantly to contemporary economic theorists) which is the most capable of being modelled with the requisite degree of formalism. For example, both the search models discussed earlier, and cash-in-advance models based on the original suggestion of Clower (1967), try to model formally the medium of exchange function, while overlapping generations of models following Samuelson (1958) focus on money as a store of value, as do portfolio choice models in the tradition of Tobin (1958). For an overview of the neoclassical literature see Walsh (1999); or, in a more accessible treatment Laidler (1993); and for a reasoned critique see Hoover (1996). Frequently however the debates over the usefulness or otherwise of the formal models boil down to the assertion that they each emphasize one of the monetary functions at the expense of the other(s), and, as mentioned, the unit of account aspect invariably seems to be on the back burner.

As is demonstrated in a number of the contributions in this volume, a major weakness of the textbook triad approach is that it draws attention away from the hierarchical nature of monetary systems in practice. Even if there is a multiplicity of media of exchange in any given monetary system, there invariably seems to be a unique asset which constitutes the medium of (final) settlement or medium of redemption in the given social setting. This corresponds to what is described as base money in the mainstream literature, or valuta money in the chartalist or state money approach discussed by Wray (Chapter 3 of this volume). Dow and Smithin (1999) have argued that a hierarchical system is in some sense fundamental, and that a logical prerequisite for a functioning system of monetary production is that the medium of (final) settlement and the unit of account are unambiguously united in the same asset, even in the presence of a multiplicity of actual exchange media. Only in these circumstances does taking a long position in the production of goods for sale in the market become a feasible or viable proposition.

It is clear from both current practice and historical example that various exchange media other than the final medium of settlement can arise, but by definition they attract less confidence, and must be related to the ultimate means of payment in some way, such as redemption pledges. This results in the notorious fragility of credit-based systems in periods of crisis, when the reliability of the substitute media has been called into question for some reason. In the typical banking system the substitute media, after all consist simply of the balance-sheet counterparts on the liabilities side to the credits which have been granted on the prospect of future income, sales, or profit.

Another key issue is whether the ultimate reserve asset is in relatively fixed supply (e.g. if it is a commodity such as gold). It is clear that monetary systems in which the reserve asset is not in fixed supply will operate in a different fashion from those in which it is. In the former, supplies of the reserve asset can be readily increased whenever the issuing institution itself is willing to make loans of some kind. Hence the emergence of the 'pure credit economy' (Wicksell 1962 [1898], Hicks 1989), in which the money supply becomes 'fully endogenous'. The interest rate on the 'loans' granted by the issuing institution then becomes the main instrument by which the reserve asset is rationed, rather than any quantity principle. Furthermore, as mentioned earlier, control over the monetary instruments and the monetary institutions which operate them, becomes one of the main 'contested terrains' in the struggle for political control and supremacy in the society (Parguez 1999). In the contemporary era of electronic money, these points should be even more clear than formerly.

Each of the authors whose work is represented in this volume has made a number of distinguished, in many cases provocative, contributions to the debates sketched out above. A wide range of points of view and different schools of thought is represented, some of which are in broad agreement with the type of argument put forward here, while others tend to the opposites, or least a different, direction. ( ... ... )

In Chapter 2 Geoffrey Ingham makes the case, as he has done in previous work, that money is most usefully see as a socially constructed (and continually re-negotiated) category, and is constituted by social relations between the monetary and other economic agencies in the society. Serious implications for the social control and production of money, and for the impact of changes in monetary variables on the so-called real economy would immediately follow. Ingham approaches the issues from the perspective of a sociologist, and makes a number of references to classic writers such as Simmel, Durkheim, and in particular Weber. However, in earlier work (Ingham 1998) he had also made the point that neither the orthodox economics nor the orthodox sociology of the present day have really got to grips with subjects of money, since the academic disciplines split to follow their different paths after the Methodenstreit at the end of the 19th century. The sociologists ceded the field to the economists (presumably on the grounds that money is pre-eminently an economic subject), but as has been shown, the prevailing tendency among the economists was also to relegate the discussion of money to a very low order of priority. It would seem, however, that any unified social science worthy of the name must at some point seriously confront what has always been, and still is, one of the key social institutions in everyday life.

( ... ) Chapter 3 is contributed by L. Randall Wray, who is one of the leading figures of this school, and has set out the main principles in a recent book (Wray 1998). Wray would not disagree with Ingham that money is a social relation, but he is quite specific as to the nature of that relation. Modern money is pre-eminently state mony, and the liabilities of state central banks acquire the status of ^valuta^ money or base money because of the coercive power of the state, and in particular its ability to levy taxes on its citizens payable in its own currency. This is a modern revival of the view of Knapp (1924), the originator of the state theory o money, and Keynes (1930), who both used the term 'chartal' in describing money. The approach is also known as the 'taxes drive money' view. An ( ... p. ~8)

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( ... ... ) point at issue. Even if money and monetary institutions did not in fact evolve in the sequence usually described in the textbooks, the logical/theoretical demonstration that they ^could^ have done so is still important. It shows that the spontaneous emergence of a market-based monetary order, without intervention by the state, is a[? at] least a theoretical possibility or benchmark. If such an order can also be shown to have desirable welfare properties (to use the standard economic jargon), then it can reasonably be the basis for policy advocacy, for example, in favour of 'free banking' or laissez-faire in the financial services industry. (Dowd 1996). One imagines, however, that a number of the other authors in the volume would question whether a regime of capitalist monetary production is feasible on this basis (see Dow and Smithin 1999).

( ... ... ) In Chapter 8 Scott Meikle discusses Aristotle' views on money. Classical Greece was clearly not a monetary production economy in the sense in which Keynesian writers and others use the term. Nevertheless, Meikle shows that many of the same ethical and analytical issues which have concerned later writers were already present in Aristotle's work.

Chapter 9 and 10 are both concerned with the modern Marxist approach to money, and are intended by their authors, Steve Fleetwood and Peter Kennedy, to be contemporary. Both authors address and seek to resolve the difficulties for classical Marxian theory which are apparently posed by contemporary forms of money, which are all more or less insubstantial, consisting of electronic money, paper money, token coins, and so forth. The difficulty which this poses for Marxian theory is that Marx conceived of money as a commodity (in the standard Marxian sense), and, moreover, as a special commodity which has emerged as the 'universal equivalent' (e.g. gold). So, in ways in which (ironically) are reminiscent of the problems of the orthodox real-exchange theory (with all due allowances for differences in terminology and philosophical perspective), the Marxian theory also is in danger of being perceived as anachronistic. Fleetwood and Kennedy both seek to dispel this view.

The other main feature of Marxian monetary economics, of course, is its own version of the circuit, M-C-M' (see Meikle, Chapter 8). The capitalist production process is seen as tranforming an initial amount of money, M, into commodities, C and then into a presumably greater 'value' of money, M'. It seems to me that many of the issues at stake can be condensed into the question how this is supposed to happen. The simple answer given by many of the credit-based endogenous money theories discussed ealier is that monetary profits must be generated by ^money creation^ over and above the initial costs of production. This is why, for example, so much attention is paid to the role of government budget deficits in sustaining aggregate demand, and why surpluses are perceived as a danger. One sector or another must be continuously willing to go into deficit in order to generate monetary profits, and, as a practical matter, the most likely candiate is the public sector. However, as is well known, this is not the route taken by classical Marxian theory. The latter involves a 'real' theory of exploitation in which employers extract surplus value, defined in terms of labour power, from the workforce. As Fleetwood and Kennedy discuss, there are therefore basically two potential responses to contemporary financial developments for Marx-inspired theory.
- One is to develop a credit-based theory of exploitation (with similar mechanisms to the other credit-based theories discussed) which is informed by Marxian social theory, but nonetheless abandons the original commodity theory of money. Some scholars have moved in this direction, and Fleetwood and Kennedy provide references to the literature.
- The second is to affirm the essential validity of Marx's original analysis of money, capitalism and exploitation, which then implies that modern developments must in some way represent a disempowerment of the original value relation. Money (as originally defined) is seen as losing its power to structure the relations of production. In other words capitalsim, as analysed by Marx in a historically specific setting, must be undergoing a metamorphosis. This is the case made y both of our contributors, who focus on the theoretical and practical aspects respectively.

In Chapter 11, Peter G. Klein and George Selgin seek to provide experimental evidence, via computer simulations, for Menger's rather different commodity theory of money. As with Dowd's contribution in Chapter 7, the objective is to discover the logical conditions under whih a unique commodity money could emerge as a generalized medium of exchange from an initial state of barter. More can be learned about the viability of the original Mengerian theory by varying the experimental conditions, such as changes in the number of agents and changes in the number of goods. The authors conclude that convergence on a single exchange medium can occur theoretically, even if the agents have a very limited amount of information at the outset.

Gilles Dostaler and Bernard Maris, in Chapter 12, ( ... ) point out ( ... ) that interestingly enough, at least on famous monetary economist, Keynes, sometimes adopted an approach to money and capitalism which was very close to that of Freud, and that the two thinkers (who were near contemporaries) had a reciprocal effect on the development of each other's thought in small, but important, ways. It is therefore legitimate to speak of a 'Freud-Keynesian' concept of money, which would have very different implications for the conduct of economic and soical policy than the more orthodox notions of rational choice.

Finally, in Chapter 13, Colin Rogers and T.K. Rymes discuss two important issues in monetary economics, one old and one brand new. The first concerns the theory of banking which Keynes put forward in his Treatise on Money (1930). This had famously disappeared by the time of the General Theory in which 'technical monetary detail falls into the background' (Keynes 1936: vii). The authors argue that this omission was very much to the detriment of the latter book.

They also discuss developments in modern payments systems in which regulatory and technical change have created a situation in which the net clearing balances of the major banks and near banks(the ‘direct clearer’ in the Canadian institutional context)can be kept at effectively zero on average. Central bankers can none the less control monetary policy via interest rte changes, as they are still able to set the ultimate penalty rate on negative balances (the bank rate of discount rate), the rate which they would pay on any positive balances and the spread between them. These instruments, together with the continuing ability to put the system as a whole into an overal negative position if needed, are sufficient to influence rates in the inter-bank market (the overnight rate in Canada), and thereby the whole complex of rates tied to this key indicator. Nonetheless as the authors point out, it is possible to interpret this '^modus operandi^ of the bank rate' (Keynes 1930: 1: 166) as a system operating without a traditional monetary base or 'nominal anchor'.

Presumably, the existence of a unique ^valuata^ money, combining the attributes of unit of account and means of (final) settlement (in this case the liabilities of the central bank) would continue to be important as the lynchpin of the system, because otherwise there could hardly be a penalty for falling into a negative settlements position. However, it is evidently impossible to think of this system operating in terms of quantitative changes in the monetary base feeding through to the broader aggregates via some kind of money multiplier. Instead the system works precisely through the central bank controlling interest rates, which leads in turn to productive agents in the economy deciding whether or not to become indebted to the banking system, and the wide variety of consequences which flow from such decisions.

The connection to Keynes is the argument that the banking theory of the ^Treatise^ anticipated this kind of world, and provided a starting point for the type of monetary theory which would be relevant in the new environment. According to Keynes 'it is broadly true to say that the governor of the whole system is the rate of discount' (Keynes 1930 2: 189). Rogers and Rymes argue that economic theory would be more advanced today if Keynes had retained the banking theory of the ^Treatise^ in his ^General Theory^. In particular, the relevance of changes in banking activity for both real rates of interest and real economic growth would be much better understood. On the latter points see also Smithin (1994, 1997, 1998).

It should be mentioned finally that in the course of preparing this volume, it was discovered that the tile ^What is Money^ was anticipated as long ago as 1913 in a little-known article by A. Mitchell Innes, published in the ^Banking Law Journal^. Several of the contributors to this volume have studied Innes's arguments and make reference to his article. The coincidence of titles is perhaps not all that surprising. Rather more so is the content of Innes's argument, which not only provides a concise summary of the traditional commodity-exchange theory of money, and criticizes it on logical and historical grounds, but also proposes an alternative credit-based theory of money. In other words, the actual subject matter of Innes's contribution also anticipates the concerns of the present work. I hope that contemporary readers will feel that each of the contributors has finally taken up Innes's challenge to thoroughly re-evaluate what he called 'the fundamental theories on which the modern science of political economy is base' (Innes 1913: 377), and collectively have made some progress towards the construction of a more relevant theory of the role of money in the capitalist economy for the 21 century.